Natural gas jumps to 13-week high after bigger-than-forecast supply drop

Natural gas futures climbed to a 13-week high in New York after a government report showed that U.S. inventories fell by more than forecast last week as cold weather boosted demand.

Gas rose 3.2% after the Energy Information Administration said stockpiles fell 146 billion cubic feet in the week ended March 1 to 2.083 trillion, sending a year-over- year deficit to the widest gap since July 2008. Analyst estimates compiled by Bloomberg showed a decline of 132 billion cubic feet. Below-normal temperatures swept across most of the U.S. last week, according to Commodity Weather Group LLC.

“You are still driven mostly by Mother Nature and that can be a huge deviation,” said Kyle Cooper, director of research with IAF Advisors in Houston. “You have a bullish year-on-year comparison and there is a lot of upward momentum in the market.”

Natural gas for April delivery gained 11.2 cents to $3.582 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since Dec. 6. Trading volume was 53 percent above the 100-day average at 2:42 p.m. The futures have risen 6.9% this year.

April $3.25 puts were the most active gas options in electronic trading. They declined 1.3 cents to 1 cent per million Btu on volume of 721 contracts at 2:43 p.m. Puts accounted for 51% of options volume.

Spread Narrows

The discount for April contracts to October, a gauge of summer demand for gas, narrowed 2.1 cents to 19.7 cents, the least since Dec. 18. The discount over the past month has been at its narrowest compared with any April-October spread for the same period going back to 2004.

The stockpile decrease was bigger than the five-year average decline for the week of 107 billion cubic feet, EIA data show. Supplies fell by 92 billion during the same period last year. The previous winter was the fourth-warmest on record for the lower 48 states, which reduced demand amid record production.

A surplus to the five-year average narrowed to 14.8% from 16% the previous week. Gas supplies were also 14.8% below year-earlier inventories, compared with 12.1% in last week’s report.

The bigger-than-expected withdrawal from storage is indicative of the cold snap last week and a seasonal shutdown of nuclear generation, said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “It’s maintenance season and we have less electrons being fired up by the nukes so that is steering demand toward natural gas.”